Legal Fees And Their Effect On Your Insurance Policy Limits.
Every business owner knows that the Country is in the grips of lawsuit mania. The number of lawsuits against small businesses has skyrocketed in the last ten years. No one is willing to take responsibility for their own actions.
Any accident or mishap is always someone else’s fault. Attorneys are bombarding the airwaves drumming up business for their firms. As a result, the lawsuits are coming fast and furious. If you operate a small business it is only a matter of time before the sheriff is knocking on your business door with a summons.
This is why you need a Business General Liability Insurance policy.
One of the most overlooked benefits of a Business General Liability Insurance Policy is that it includes coverage for legal fees in the event of a covered claim.
If you do not have insurance these fees along with any judgments will be paid by you. For most small businesses this would more than likely force them to close their doors for good. It is important to realize that no matter how careful you are, accidents will happen. Also, a meritless claim still has to be defended and legal fees paid.
Business General Liability Insurance Policy Limits
With all Business General Liability Insurance Policies you have Policy limits. These are the maximum amount the insurance company will pay on your behalf in the event of a claim. They are usually stated as two numbers such as $1 Million/$2 Million.
What this means is that the company will pay up to $1 Million for a single claim and up to $2 Million if you have multiple claims. ( On a side note, run away from any agent that attempts to sell you a lower amount. The difference in cost of a $250,000 and $1 Million policy is generally less than $50 per year.)
Legal Costs Inside The Policy Limits VS Outside The Policy Limits
The insurance companies have taken notice of this trend. One of the things more and more policies contain is that costs of defense are included in Inside The Policy Limits. What does this mean you may ask yourself? Well here is a simple explanation.
When your policy has legal costs Inside the Policy Limits wording this means that any costs generated in defending the claim against you will reduce the amount available to pay any judgment, if one is awarded.
Here is an example. A customer files a lawsuit against your business. The insurance company spends $400,000 in legal costs defending you. You have a $1 million policy limit. You will only have $600,000 to pay any judgment because of the Inside the Policy Limits wording. The insurance company is only responsible for
When your policy has legal costs Outside the Policy Limits wording this means that any costs generated in defending the claim will NOT reduce the amount available to pay any judgment if one is awarded. Here is the same example as above but in this case, the policy contains Outside the Policy Limits wording.
A customer files a lawsuit against your business.
They spend $400,000 in legal costs defending you. You have a $1 million policy limit. You will still have $1 Million to pay any judgment because of the Outside the Policy Limits wording. The insurance company is still responsible for $1 Million for any judgment and $400,000 legal costs.
This may seem like a trivial matter, but in the real world, this can mean life and death for your business. It does not take much in this day and age for legal bills to reach the stratosphere. You need to be aware that if there is a judgment against your business that exceeds the policy limits of your insurance policy you will be left holding the bag for the difference. If your policy has Inside the Policy Limits wording the greater the chance of this happening.
Have Any Other Insurance Questions?
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